When I got back in the real estate business back in 2004 I was astounded to learn that the qualifications for getting a mortgage had changed radically since I left the business in 1991. When I was got into real estate in 1973 home buyers were qualified on a 1-4 ratio, meaning 25% of their verified income could be used for a house payment – and not a cent more. And when I say verified, I mean verified. The process of getting the “good to close” from the bank normally took 3 months because of the rigorous regimen the banks adhered to in making sure they were writing a good loan.

In 2004 when I learned that the qualifying income had somehow morphed into 65% I was taken aback to say the least, and because I had learned back in 1973 that the ABC’s of successful mortgage lending/home ownership was “lend conservatively and borrow what you can afford”, it was apparent to me that something was way, way out of skew in the market that I was now re-entering. So I did some research and I found that subprime mortgage activity grew an average of 25% a year from 1994 to 2003, far outpacing the rate of growth for prime mortgages. Astounding.

Why did this happen? Although subprime mortgages have existed for a long time, they were rarely offered by mortgage companies – and for good reason. It was clear to me that something dramatic must have happened as financial institutions don’t revise their lending practices without a good reason, and for a tenfold increase in subprime mortgages to take place – something big must have been the catalyst.

Well, I learned something BIG had happened. In 1994 the administration under Bill Clinton deregulated mortgage lending rules and pushed through fundamental changes to the Community Reinvestment Act of 1977. The goal of these changes was to ensure that banks were serving low and moderate income groups, and making sure that the banks “economically empowered persons of low and moderate income.” Regulators were given the power to penalize banks who did not follow the new rules. In effect, the lenders were mandated by law to weaken their underwriting standards and pressured by entities such as ACORN to lend to borrowers who would never, ever qualify under the old standard. A New York Times article from Sept. 1999 states that Fannie Mae had been under increasing pressure from the Clinton administration to expand mortgage loans among low- and moderate-income people and that the corporation loosened its lending requirements to comply.

This was the change that led to the explosive subprime lending – and was praised by the LA Times as “one of the hidden success stories of the Clinton era.”

Brilliant!

Why am I telling you this? Because as we all now know, it was the subprime mess that has brought us to the economic mess we are in today and I pissed off, as I think you should be.

Over this past weekend I watched as Nancy Pulosi, Barney Frank and Harry Reid congratulated themselves on the “bailout” plan they devised, and I almost threw up. For the life of me I can not understand how they could so shamelessly take credit for solving the problem created by their party by putting the country into an even bigger – 7 BILLION Dollar mess.

Keep in mind that in 2003 the Bush administration tried to warn of the dangers that were looming due to the weakened underwriting standards – these warnings were rebuffed by Congress.

Barney Frank, chairman of the House Financial Services Committee, rejected a Bush administration and Congressional Republican plan for regulating the mortgage industry in 2003, saying, “These two entities – Fannie Mae and Freddie Mac – are not facing any kind of financial crisis.” According to a New York Times article, Frank added, “The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”

And now he is slapping himself on the back? Give me a frickin’ break.

On January 26th, 2005 Senators Elizabeth Dole, John McCain and John Sununu introduced S.190, the Federal Housing Enterprise Regulatory Act of 2005, which was designed to put an end to the reckless lending that they correctly foresaw as leading the country into sure economic failure.

The bill was not passed.

Yesterday, Nancy Pulosi, had the audacity to blame the Bush administration for the current economic mess prior to the House vote on the bailout bill. Now that was bright. As repulsive as her pre-vote speech was, it was not the reason the bailout bill did not pass. Democrats and Republicans alike voted against the bill because they know there are alternatives to the crap shoot 7 billion dollar spending, which does not in any way guarantee to stabilize the economy, and this is why I am taking the time to write to you.

The alternatives include government insurance, dropping “Mark to Market” an accounting practice which does not accurately value assets, and the suspension of the capital gains tax. These measures would flood the market with investors and should be enacted before making all of us liable for 7 billion dollars.

I could care less if you are a Republican or a Democrat -- this is an issue that affects us all, and it is time that we speak up in non-partisan unison.

If you have no problem taking on 7 billion dollars in debt, do nothing.

If you do have a problem with it, I urge you to contact members of The House of Representatives and demand that the above alternatives are included in the final bill.

It looks to me like a large percentage of available home mortgage buyers have been permanently removed from the marketplace. They bought much larger and more expensive homes than they could actually afford because the new lending practices allowed them to have "eyes bigger than their stomach" as my mom would say. They put way more on their plates than they could eat.
Even discounting the people who never should have had a mortgage in the first place, how many people have had their credit virtually permanently trashed and won't be able to qualify for a home mortgage for at least what, 12 years? How is the American economy going to survive for twelve years while the entire housing industry lies dormant due to no qualified buyers?
The only answer I can think of is for fannie may and freddie mac, now operated by fedgov, to offer mortgages to those buyers who lost their homes only when their sub-prime mortgages jumped, but who made their payments on time before that happened. Or to insure loans made to the same by private lending agencies. I don't like government intervention in the marketplace, which is how we got here in the first place, but this whole situation was artificially created by the government, and if we simply wait while free market forces catch up to the present circumstances it's going to be a long, painful recession. I'm not an expert in this arena so I would be happy to be shown where I'm missing something.

Don't forget the realtors put a lot of money in their pockets while this mess was going on. Selling housing to people that couldn't afford it artifically raised the cost of housing in the marketplace. This also contributed to unaffordable housing for our kids today. Bankers and realtors both made a lot of extra money during this period of time. Don

Short term fix's usely = long term loss, but a long term fix usely goes through a short term loss. So Clintons short term gain is our long term loss. Looks like if done correctly we got to go through some worse times yet. Nice post Luckyman

bigdogtx, I think a lot of them have already gone home. When there is no work for them here, the cheaper cost of living south of the border is their fall back position. I suspect one of the reasons demand for oil is down is that many illegals are no longer here burning gas.

lead, yes I am supporting and voting for McCain/Palin. While McCain has voted for this in the past, he also said he heard us the last time and now realizes it is "secure the border first". I also know that the other ticket is for EVERYTHING that I am AGAINST. It is a matter of which candidate more closely resembles the America that IS America and NOT Europe. Jim

In spite of all the ballyhoo of recent days, most people do not know much about the mortgage process.

For starters, the realtors cannot sell a house to anyone who can't afford it. If the buyer could pay cash then they obviously can afford it. If not, they would need a mortgage and that is the responsibility of the mortgagor (buyer). Now the person selling the mortgage is not to blame since he merely fills out the application and related paperwork. It is not even the fault of the underwriter who merely makes certain that the loan conforms to the terms of the program established by the lender. It could also be argued that it is not even the lender's fault since he has merely constructed a loan which conforms to the guidelines established by Fannie Mae or Freddie Mac.

When you can buy a house for less than you can rent an aparment for, there has to be a Red Flag or something that makes you wonder how the hell that can be ... When you can buy a house and get a bank account with it as was happening in many states where the builders were giving rebates to the buyers, only a fool would think that its in anyones best interest but the sellers ... I have bought and sold many homes, houses, and condo's in my lifetime and never once was I ever able to do so without a down payment, thank God for that or I might be right in the middle of the slew with a lot of other people ... I have always paid my bills and that mind set has changed for many people also, now its cut and run ... Show me the money, not a piece of paper telling me what you are supposedly worth ... In God we trust, all other CASH ... WPT ... (YAC) ...

If I loan $5 to a person who has a poor credit history simply because he signs a paper agreeing to pay me back $6, I should not be surprised when he does not pay me back. If you buy the promissory note from me for $5.50, you would be dumber than I was when I made the loan.

Actually, Pat, it's not dumb at all if your Fannie Mae and know that the government will make up the loss from their stupid move. So long as the government is willing to bail out those idiots, they have done a smart thing.